Thread by @davidfickling

Building a *brand new* wind farm is now cheaper than paying benchmark prices for *existing* coal-fired power in all of China's affluent coastal provinces.

But the government must do more to make the switch to clean energy:

bloomberg.com/amp/opinion/ar…

There's no bigger unknown about the fate of the planet than the question of which energy policy the Chinese government will pursue in its next five-year plan running from 2021 through 2025.

If it accelerates renewables transition we could be well on track to a below 2°C future.

In instead it continues to embrace its coal industry and industrial stimulus the way it did in recent years, there's almost nothing the rest of the world can do that would move the needle enough to avoid that fate: bloomberg.com/news/articles/…

So one piece of massively good news out there is that the costs of renewables in China are lower than anyone could have hoped even just a few years ago.

Until recently it was considered a big deal that *new* renewables were cheaper than *new* coal.

That dynamic should make renewables the most viable option for all *new* power generation.

But now, new renewables are cheaper than *existing* coal across China's industrial heartlands.

That should make renewables the most viable option for *all* generation.

Coal is dead?

Well, not so fast.

1. Those "benchmark" power prices aren't the same as operating costs. They're usually artifically high, designed to keep coal generators profitable. With deregulation, they're likely to fall and squeeze renewables' margin advantage.

2. China has historically paid a fixed rate per MWh to power generators, but this is gradually switching to time-of-day pricing. That's likely to depress middle-of-the-day prices when solar is generating and give coal a chance to make more money in the evening peak.

3. China's local governments often have a stake in coal-fired power plants and get to choose whether to hold a power auction or not.

The best option for their finances is often to hold no auction and keep cheaper renewables out of the market to prop up existing coal-fired plant.

This last is the most important one. Local governments in China are awash in debt as it is. There's very little incentive for them to embark on new capital spending that will force them to write off existing coal-fired capital stock.

But that's where there's an opportunity for central government.

Accelerating the switch should lower power prices; reduce the health burden from fossil pollution; and support the environmental objectives that Xi sees as one of the country's three biggest challenges.

Coal-fired power in China is struggling as it is. Load factors (the share of time generators are running) have been below 50% for years, and you really need them above 70% to make a decent return.

That's one reason I think the biggest worry is not that the new coal plants under development will lead to more coal generation.

They'll probably mostly just switch old subcritical coal for new supercritical and ultra-supercritical coal, with little net effect on emissions.

The bigger problem is that all that coal investment will crowd out the huge amount of renewables that China needs to roll out very rapidly over the next five years.

That will leave China with costlier, dirtier energy and the world with little hope of staying below 2°C.

There is a real opportunity for China's government to shift its energy system, and the world's climate, to a better equilibrium. All that local government debt is mainly owed to state banks, so Beijing could force a restructuring.

Also, China is seeking foreign capital investment to plug its own capital account, which is probably in a structural deficit due to grey outflows.

Non-nuclear power generation is wide-open to foreign investors if they can be tempted in.

I'm not as optimistic as I'd like to be about this happening.

China is in a grim, autarkic moment right now, so while it's pushing hard on electrifying transport (because most petroleum is imported), coal reserves are domestic and politically favoured.

The economy is slowing, too, so no one wants to push mass job losses in smokestack industries.

The loss of cooperative climate leadership from the U.S., and the trade war more broadly, make the more carbon-intensive future more likely.

Still, there is a hopeful path out there! I hope China can follow it, for all our sakes. (ends)

PS this is the killer chart from @BloombergNEF

Anywhere the blue circle is below the black triangle, new wind power should be cheaper than benchmark coal *now*.

The provinces you should care about, the engine of China's economy, are Guangdong, Shanghai, Zhejiang, Jiangsu, Shandong, Hebei, Liaoning, Fujian. Wind is cheaper in all of them. Not so in Beijing and Tianjin, but they'll import power from Hebei and other non-urban regions.